On September 7, 20X5, Labrador Limited signed a contract to buy equipment from a US manufacturer. The price of the equipment was US$ 500,000. On the same date, Labrador entered into a forward contract with the bank to buy US$ 400,000 on February 1, 20X6. Labrador designated the forward contract as a hedge of the outstanding purchase commitment on the equipment.
The equipment is to be delivered no later than December 1, 20X5. Labrador made a 20% down payment on September 7, 20X5, and signed a promise to pay the balance on or before February 1, 20X6. The exchange rates are:

The equipment was delivered on schedule. Labrador paid the manufacturer and closed out the forward contract on February 1, 20X6.

Required
1. Assume the hedge was designated as a fair-value hedge. Record the journal entries to record the purchase and the related hedge for 20X5 and 20X6. Labrador€™s fiscal year ends on December 31. Ignore amortization of the equipment.
2. Assume the hedge was designated as a cash-flow hedge. Record the journal entries to record the purchase and the related hedge for 20X5 and 20X6. Labrador€™s fiscal year ends on December 31. Ignore amortization of theequipment.

Spot C$1.00 USS0.92 C$1.00 US$0.90 C$1.00 US$0.85 C$1.00 US$0.88 Forward September 7, 20x5 December 1, 20x5 December 31, 20X5 February 1, 20X6 C $ 1.00 .-US$0.91 C$ 1.00 US$0.893 C$ 1.00-, US$0.845 n/a